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International Trends in Public Sector Support for Research and Experimental Development
A preliminary analysis
Dr Mark Matthews
Professor Ron Johnston
99/8
June 2000
| Evaluations and
Investigations Programme Higher Education Division Department of Education, Training and Youth Affairs |
|
©Commonwealth
of Australia 1998
ISBN 0 642 23996 7
ISBN 0 642 23997 5 (online)
DETYA No. 6461.HERC 00A
This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without permission from AusInfo. Requests and inquiries concerning reproduction and rights should be addressed to the Manager, Legislative Services, AusInfo, GPO Box 84, Canberra ACT 2601.
The views expressed in this report do not necessarily reflect the views of the Department of Education, Training and Youth Affairs.
Executive summary
Synopsis
This report discusses the findings from a preliminary study of international trends in public sector, and private non-profit sector, support for research and experimental development (R&D). The brief was to examine significant initiatives in a range of countries and to assess the implications of these trends and initiatives for Australian policy.
The study suggests that there is compelling evidence of convergence both in policies and in R&D expenditure profiles during the 1990s. This policy convergence involves moves towards a more balanced emphasis on supporting discovery and linkage-building. The Department of Education, Training and Youth Affair’s proposals to improve this balance are therefore in line with overseas trends.
The caveat is that the time-frame and budget for this preliminary study have not allowed a particularly extensive and detailed analysis to be carried out. The convergence finding should therefore be treated as a hypothesis to be tested via a more extensive and detailed study. Such a study should await the publication of updated R&D data by the OECD.
Context
The rationale and objectives for public sector support for research and development (R&D) are in the process of substantial transformation.
The emergence of the knowledge economy, reflected in the markedly accelerated supply of, and demand for, market-oriented knowledge, has placed knowledge and its creation even more clearly at the heart of the modern competitive economy.
At the same time, the general trend in Western nations away from government intervention in the market place, coupled with constraints on public expenditure, has increased the competition for the public purse from a range of worthy ‘public good’ causes.
These, and other, forces have led to the role of basic research being both questioned and, arguably, transformed.
Some have argued that the importance of knowledge production and interpretation in modern economies provides a clear and unchallengeable rationale for substantial public investment in basic research. An alternative argument is that within a national innovation system, performance in the knowledge economy is determined less by knowledge creation than the ‘distribution power’ of the system, to ensure timely access by innovators to relevant stocks of knowledge.
Traditional approaches, essentially based on the ‘one-way’ linear model of innovation, treat knowledge production and knowledge application as largely distinct activities. Both may be necessary to achieve the economic benefits of research, but their practice and their funding are separate endeavors. Indeed, the research community often sees investment in application and diffusion as being at the expense of research.
This traditional perspective, we would claim, is based upon an outdated view of both the knowledge production and knowledge application processes, and their interaction. Analysis of theoretical issues, international policies and actual patterns of investment indicate the emergence of a new model in which discovery and application are effectively fused, and linkages in both components are of crucial importance. This new model takes knowledge discovery and knowledge linkages as its central components.
An appropriate policy framework for investment in discovery and linkages
The discovery process is based, in part, upon feedback. Theory advances via empirical testing, not just in basic and applied research but also in experimental development and subsequent activities. Shortcomings in current theory are revealed by both deliberate experimentation and by the unanticipated outcomes in practical applications. The result is a two-way integrated process of knowledge advancement in which basic research, applied research and experimental development can be closely linked. Linkages are, in principle, an integral part of the overall discovery process, particularly when different types of research and their application are carried out in different sectors.
Under the competitive conditions in the knowledge economy, leading firms are seeking to reduce the large investments in experimental development that partly reflect weak predictive theoretical capability (ie building products and processes to see if they are safe and work effectively because theory cannot, yet, predict this with sufficient accuracy).
At the same time, there is a progressive strengthening of the linkages between the various components of the national innovation system resulting from a growing recognition of their interdependence. A variety of interface organisations have emerged to promote these linkages. Although the precise institutional form of these interface organisations varies internationally, the underlying capabilities are common.
The increasingly integrated nature of the discovery process is clearest in those countries in which both the research base and industry operate at, or near, their respective scientific and technological frontiers, most notably in the US. This integration can result in a virtuous circle in which inter-sectoral research collaboration and application via linkage-mechanisms improves linkage effectiveness via ‘de-bugging’ learning-by-doing, so lowering the risks and increasing the pay-offs associated with future collaboration.
This ‘learning-by-doing’ in linkage building often requires government support in order to overcome market failure in resource allocations and to obtain public good benefits. This is because cultural and legal impediments to linkage-building can limit what would otherwise be beneficial collaboration, yet these impediments can only be reduced via actual experience with linkage-building. In many cases this initial experience will need to be subsidised in order to offset the risks involved.
The greatest challenge to achieving this ‘virtuous circle’ of learning-by-doing in Australia is the low level of industry investment in R&D, and the underlying cultural perspective towards innovation this reflects. This results in a mismatch between public sector and private sector capabilities.
International trends in investment in discovery and linkages
A preliminary analysis of international trends in public sector support for R&D as expressed in policy and budget initiatives suggests that many countries have recently begun to converge in the emphasis placed upon discovery and linkages:
• Those countries that have traditionally placed a strong policy emphasis upon investment in discovery are now seeking to ‘re-balance’ this investment with more linkage-oriented investment and support mechanisms. Better industry-higher education and government research organisation linkages feature strongly in these older science powers. The United States, the United Kingdom, and Australia exemplify this trend.
• Those countries that have developed strong linkage capabilities (mainly within and between the business and government sectors) as part of their technology catch-up strategies are now attempting to develop better discovery capabilities. Japan, and Singapore are exemplars of this trend. However, industry-higher education linkages are not particularly well developed in these countries and they consequently face a problem in building discovery capabilities.
As a result, a new mode of converging public sector support for R&D appears to be emerging in which the overall capability of national science and innovation systems is seen as resting upon an appropriate balance between discovery and linkage investments.
An examination of readily available statistical data on the changes in each R&D performing sector’s share of national basic research and applied research expenditure (in the small sample of countries for which adequate data is available) indicates a similar process of convergence in the sectoral distribution of R&D activity during the 1990s. Over this period, the sectoral distribution of R&D activity exhibits a ‘regression to the mean’ with each performing sectors’ share of the different types of R&D converging upon apparent international norms.
Industry in the US is re-focussing R&D investment away from basic research and in favour of applied research and experimental development. Stronger research linkages with the higher education sector and government research organisations are being used to compensate for relative reductions in the business sector’s internal basic research effort.
The public sector R&D performers—higher education and government research organisations—appear to be settling upon norms for shares of basic and applied research expenditure which increasingly reflect their more integrated role in the R&D system. The result is more balanced basic and applied research activity with greater linkages to other R&D performing sectors.
The emerging R&D systems would seem, therefore, to be characterised by a more effective balance in:
• The distribution of investment between basic research, applied research and experimental development into the most appropriate performing sectors given existing linkage-capabilities and distinctive capabilities; and
• The relative emphasis placed upon linkage-building: within the R&D system; between the R&D system and the rest of a nation’s economic activity; and, internationally.
Conclusions
• Integrative capacity both within national science and innovation systems, and between different national systems (ie linkages), is likely to be a major determining factor in the future wealth of nations. There is evidence that policy priorities overseas are now focusing upon ‘balanced’ investments in discovery and linkages.
• Public sector support for R&D is increasingly reflecting attempts to integrate the different R&D performing sectors better than has been the case in the past. As a result the sectoral distribution of national R&D efforts may be converging on new international norms.
• Sufficient linkage building will not necessarily occur without focused government support. This is because linkage building is affected by market failure. As a result, markets may not be efficient resource allocation mechanisms because past experience will ‘lock out’ potentially productive linkage-based investment options.
• Structural weaknesses in industry R&D in Australia will limit the pay-offs to more balanced investment in discovery and linkages.
• The best means of overcoming the industry R&D and innovation capability constraint is to facilitate stronger cross-border linkages between the Australian science-base and overseas industry. This will build the Australian science base’s capability to work closely with industry, which will in turn help to attract high-technology foreign direct investment into Australia in order to exploit this discovery capacity. A more balanced emphasis on discovery and linkages in Australian R&D policy should consequently emphasise international linkages as much as domestic linkages. This international focus is also in line with overseas approaches.
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